Tuesday, 27 January 2015

Suzlon Energy: Beating a retreat

For sheer tenacity, you can’t beat Tulsi Tanti. While it wasn’t surprising the country’s larger business houses -—the Tatas and Birlas—were snapping up assets overseas at top dollar valuations in 2006 and 2007, given they had bigger balance sheets and deeper pockets, Tanti’s ambitions were backed by little more than confidence. But the entrepreneur, who won much admiration for buying out Senvion SE for EUR 1.5 billion way back in 2007, isn’t really envied by anyone today.

Tanti, who founded Suzlon Energy to make wind turbines, has been forced to give up the German firm at a loss with a sale to private equity firm, Centrebridge Partners LP fetching him just EUR 1 billion. While he may justify the valuation and claim there’s a gain on the currency, it’s a fact that global energy majors were valued more highly in mid-2014. Suzlon’s bankers, however, will be a relieved lot because it was evident that the firm, which had piled up a debt of R17, 323 crore, was becoming increasingly vulnerable to a bankruptcy. Already the Pune-headquartered firm had defaulted on a $209 million repayment in 2012 and bankers had restructured R9,500 crore worth of borrowings.

With the benefit of hindsight, Tanti’s ambitions of going global appear audacious even if the acquisition of the Hamburg-based Repower AG—renamed Senvion—catapulted Suzlon Energy to a new league altogether allowing it to access to state-of-the-art technology. Tanti also bought the Belgian firm Hansen Transmission, which specialised in gearboxes for turbines, in what was a strategic fit. In a matter of months, Suzlon had become the world’s fifth largest maker of wind turbines with revenues of close to $2 billion, not an insignificant number those days.

But despite Senvion’s remarkable growth over the years, and an enhanced presence across several markets globally including the US, the business wasn’t throwing up enough cash to ensure the debt could be serviced properly. After giving the company a grace period in which to repay them, bond holders had no option but to allow the promoters an easier repayment schedule. Bankers, for their part, had backed him to the hilt but were becoming impatient. Tanti sold off Hansen in stages, the last part of the stake being offloaded in 2011 but held on to Senvion.

However, even after R6,000 crore of the R7,200 crore that the Senvion sales fetches is returned to the banks, the firm will remain hugely overleveraged.

Unfortunately for Suzlon, in its quest for a global presence, it took its eyes off the potential back home and over the last couple of years other global energy players have moved in: Gamesa, in particular has picked up a fair bit of market share. While the local market does provide Suzlon with an opportunity, especially with the strong focus on renewable energy, how soon Tanti can put the firm back on its feet is unclear. After all, Senvion was by far the bigger and better part of the business.

If Tanti can revive Suzlon, he would have proved his mettle. The businessman has so far not walked the talk which is why his claims of being able to make the operations profitable by FY16 appear hollow because while there could be opportunities across the globe, it won’t be easy to get a foothold in any of the many markets that Tanti is eyeing; indeed as he told a newspaper, the markets where the firm hopes to operate are yet to be identified. Tanti is no newcomer to adversity; even getting full access to Senvion’s designs was a challenge because German law required him to buy out minority shareholders. Worse, in 2008, Edison Mission Energy complained Suzlon’s blades supplied were faulty and the latter was forced to recall the cracked blades and replace them. But he’s survived it all.